Johnson & Johnson will not be matching Amgen's latest discounts in the EPO market, J&J CFO Robert Darretta indicated during an April 13 investor call.

J&J will focus on expanding the market for its erythropoietin brand Procrit , rather than attempting to meet Amgen's price discounts for Aranesp (darbepoetin), Darretta said.

"We've seen recently much more aggressive pricing on the part of our competitor" with "discounting quite commonly in the order of magnitude of 40% off list. So this has become a very significant concern for us."

J&J maintains that Amgen's pricing strategy for Aranesp includes bundled discounts on other key products.

"Some of that price discounting that is occurring with the competitive product is not just on their competing product, but other products that they are bundling with that product," VP-Investor Relations Helen Short said. "That is also entered into the mix of how their pricing competition is working."

"It's pricing that's coming about both directly by lowering their red blood cell product [Aranesp], as well as their giving preferred pricing on their white blood cell product," Neupogen/Neulasta (filgrastim/ pegfilgrastim), Darretta said.

Amgen implemented an aggressive pricing strategy for Aranesp in part because of a decision by the Centers for Medicare & Medicaid Services in November 2002 to deny enhanced reimbursement for the drug on the grounds that it is "functionally equivalent" to Procrit (¹ Also see "Amgen Discounting Aranesp After Medicare Reimbursement Cut" - Pink Sheet, 27 January, 2003., p. 24).

J&J responded by modifying its Procrit pricing program to compete with Aranesp. The policy was an attempt to retain a "level playing field" between the two products (² Also see "J&J Modifies Procrit Pricing Practices To Compete With Amgen’s Aranesp " - Pink Sheet, 21 April, 2003., p. 13).

J&J is backing away from that policy, the company indicated. "Our strategy is to have a reasonably level playing field, in terms of economics," Darretta said. However, "we don't think to hold onto our customers we need to go all the way down to our competitor's level in terms of pricing."

J&J is cautioning investors to expect continued erosion of Procrit's market share. Amgen has captured about a third of the EPO market; Procrit held a 68% share at the end of February, J&J said.

"We certainly can't have that type of disparity [in price] and expect to retain appropriate levels of market share," Darretta said. "I think it's going to be an interesting period of time, given this much more aggressive pricing posture."

The performance of Procrit was one of the few weak spots in J&J's first quarter earnings report. Procrit's U.S. sales declined 5% to $688 mil. during the first quarter. Worldwide sales for Procrit/ Eprex were down 6% to $977 mil.

The company suggested that it is unlikely to see an improvement in Procrit's growth rates over the course of the year.

While J&J characterized the first quarter results as "good" in terms of market growth and slowing share erosion, "to continue to protect our share in light of this new pricing approach, it's going to be even more challenging to repeat first quarter performance, let alone have flat year-to-year sales," Darretta cautioned.

However, J&J's other business lines are performing so well that the company raised its earnings guidance for 2004 (see ³ Also see "J&J Headcount Reduction Program On Target; Company Posts Strong Quarter" - Pink Sheet, 19 April, 2004.).

For 2005, one critical variable for Procrit will be the transition in the Medicare Part B reimbursement formula from the current average wholesale price methodology to an average sales price model (⁴ Also see "Novartis Applauds Medicare Rx Pilot; Overall Bill “Somewhat Negative”" - Pink Sheet, 26 January, 2004., p. 21).

J&J is taking a "wait and see" approach on the potential impact on Procrit. "Obviously, we will have to see how ASP regs finally are sorted out and understand their impact," Darretta told investors.

J&J also has resubmitted an application for approval of once-weekly dosing for Procrit in the chemotherapy setting.

The product is commonly used in that dosing schedule, but J&J has had difficulty obtaining regulatory clearance to promote that use (⁵ Also see "J&J Procrit Once-Weekly Labeling Resubmitted To FDA" - Pink Sheet, 20 October, 2003., p. 26).

J&J Draws Line On Procrit Price; Will Not Meet Amgen Aranesp 40% Discount

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